Auto suppliers take more pessimistic view of China vehicle production

Garrett Motion. (Delaware)

31/07/2019 21:47

By Ben Klayman
    DETROIT, July 31 (Reuters) - Many global auto suppliers are
striking an even more pessimistic tone about Chinese vehicle
output this year than some research firms, with the suppliers
bracing for the pain to be far greater than the single-digit
percentage declines predicted by some in the industry.  
    There have been 12 straight months of falling sales in the
world's largest automotive market, and demand in China is
expected to decline for the second straight full year. Fiat
Chrysler Automobiles  FCHA.MI  on Wednesday cut its China
industry sales outlook by 4%.  urn:newsml:reuters.com:*:nL4N24B1F4
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    China auto sales have been hurt by a slowing economy and a
bruising trade dispute with the United States that has hurt
consumer confidence.
    Exacerbating the industry's pain is the implementation of
tougher emissions standards that has automakers slashing vehicle
production so they are not stuck with vehicles they may not be
able to sell. That has made planning tougher for suppliers, who
focus on production figures and see a more severe decline ahead.
 urn:newsml:reuters.com:*:nL8N23Y0PO
    "It's an opaque situation," Aptiv  APTV.N  Chief Executive
Kevin Clark told analysts on Wednesday. Aptiv makes advanced
driver safety systems.
    Clark questioned whether inventory levels in China are still
inflated and said the company has cut jobs there in line with
the production declines to keep costs under control. Aptiv is
planning for China production to fall 15% in the third quarter
and 13% for the year.
    "We feel as though we've taken a fairly conservative
position and balanced the risk and the opportunities in our
current outlook. Is it possible that it could be worse? It is
possible. We don't think it's likely," he added.
    Research firm IHS Markit estimated this month that light
vehicle production in China this year would fall 6.9% to 24.76
million vehicles from 26.61 million in 2018.
    Clark is not alone in taking a more conservative stance
given the declining demand and production. Several CEOs at auto
suppliers on their earnings calls this month talked about
double-digit declines in output.
    Garrett Motion  GTX.N  CEO Olivier Rabiller said on Tuesday
the company was changing its full-year production forecast for
China to a decline of 10% from its prior forecast for an 8%
drop. The company reduced its 2019 financial outlook as a
result.
    "We are a little bit more pessimistic than the consensus of
the industry," he said. 
    On July 19, Gentex Corp  GNTX.O  Chief Executive Officer
Steven Downing said the company made a point of planning more
pessimistically for the second quarter than IHS had predicted.
    "We did make some manual adjustments to the IHS data, which
actually served us pretty well," he said. "We're taking the same
approach in the back half of this year." 
    BorgWarner Inc  BWA.N , which slightly lowered its 2019
profit forecast, is now planning for a decline in China of 10%
to 14% for the year.
    "We want to share that realistic outlook," CEO Frederic
Lissalde said July 25. "That is our best guess."
    Like several suppliers, BorgWarner talked about
outperforming the weak market.
    Visteon Corp  VC.N  on July 25 said it grew 30% in China in
the second quarter and has added $1 billion in new business
there year to date. It credited new product launches and
upgraded content in vehicle cockpits, including a deal with an
unnamed automaker for a next-generation infotainment system.
    Visteon Chief Executive Sachin Lawande said growth in China
compared with earlier expectations would be "muted" and the
company now expects industry production for the year to fall
10%, compared with a prior forecast for a 4% decline. Visteon
cuts its full-year profit outlook.   
    Lear Corp  LEA.N  said on July 26 that the midpoint of the
company's outlook assumed China industry production would fall
more than 20%. 
    Of course, the trade tensions between the United States and
China could further upset plans. 
    Aptiv has reduced the hit from trade tariffs between the
countries to $44 million from $75 million previously, and Clark
sees that climate as permanent rather than temporary. The
company has shifted production from China to South Korea to cut
costs as a result.

 (Reporting by Ben Klayman in Detroit
Editing by Matthew Lewis)
 ((benjamin.klayman@thomsonreuters.com
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